Why I’m bullish

The coronavirus has led to a lot of economic pessimism.

I’m more bullish than most commentators. Why?

  • Stock prices have bounced back from their mid-March lows
  • Shops, schools and factories can open again thanks to workarounds
  • Government transfers have stabilized incomes
  • The corona shock has sped up the digital transformation
  • Masks and testing will bring the virus under control without lockdowns or a vaccine

The future looks bright!*

*Unless premature austerity kills the recovery.

Economists failed us yet again

Two stories dominated popular economics over the past years. Both of them turn out to be useless in the current corona crisis.

Story 1: “Robots will take our jobs!”

Fact check: people lost their jobs due to shutdowns. But no robot is taking those jobs. Partly because of the nature of the crisis. We don’t want to go to crowded restaurants right now, not even if they have robot waiters. But also because robots aren’t ready. We still rely on (badly paid) people to pick fruit and to slaughter animals.

Story 2: “Crypto will replace fiat money and banks!”

Fact check: firms need cash. They don’t want bitcoin, but dollars and euros. Central banks and governments backstop the economy. This would be impossible with a cryptocurrency with a fixed supply, as I already pointed out in Bankers are people, too.

So instead of educating voters and policy makers about money, economic influencers have wasted years of popular discourse on these two sideshows.

Thanks for nothing, economists!

Plague or famine? How Covid-19 threatens food security

The amount of household income spent on food varies greatly by country. In countries like the U.S., Singapore and Australia, less than 10% of consumers’ income goes to food. Households spend more than 40% of their income on food in countries like Nigeria, Kazakhstan and Algeria.

Of course, these are average numbers. Even in rich countries, the poorest households spend a much larger percentage of their income on food than the wealthiest.

How does the coronavirus affect food affordability? Affordability is a function of incomes and food prices.


White collar workers can work from home during lockdowns. In countries with a strong social safety net, the government pays unemployment benefits to people who lose their jobs. The income loss of households due to lockdowns is modest.

On the other hand, lockdowns are devastating if they stop the informal economy and the state doesn’t support people’s incomes. Families who depend on remittances are in trouble if their relatives can’t earn and send money.

The corona crisis has hit certain sectors especially hard. Nations that depend on tourism or on the export of oil or garments face a severe dollar income shock.

Food prices

The coronavirus has raised retail food prices in multiple ways.

Several countries have limited or banned food exports. Travel restrictions prevent migrant farm workers from harvesting crops. Milk and vegetables go to waste at farms because of supply chain disruptions. Farmers are denied access to markets in cities. Lockdowns make food exports difficult.

Food prices are skyrocketing from West Africa to the Middle East.

Schematic effect of (the reaction to) the coronavirus on food affordability. Note that there are huge inequalities within countries.

WEIRD economists should take into account inequality before advocating lockdowns.

If you want to learn more about the impact of Covid-19 on food security, you should follow the Food Pandemic Twitter account of R. Zurayk, N. Amhaz, A.Yehya. They share a lot of news from Africa and the Arab World.

Economists’ stance on lockdowns is WEIRD

Most economists argue that there is no ‘health versus economics’ dichotomy. A widely shared article by Sergio Correia, Stephan Luck, and Emil Verner on the 1918 Spanish flu “suggest[s] that pandemics can have substantial economic costs, and NPIs [non-pharmaceutical interventions] can lead to both better economic outcomes and lower mortality rates”. Sam Bowman and Martin Eichenbaum, Sergio Rebelo and Mathias Trabandt believe that shutdowns are worth the lives saved, despite the costs.


On the other hand, Michael Burry and Toby Young think that governments are overreacting. Lockdowns cause disproportionate damage to people’s lives.

All of these commentators base their recommendations on the U.S. or Western Europe. But the best response to Covid-19 might be very different in the rest of the world. Not just food affordability, but also demographics and the effectiveness of measures to contain the virus differ greatly between countries. Economists are WEIRD.

Fiscal burden sharing between EU member states is not the solution to the corona crisis. The ECB needs to do its job.

Fiscal burden sharing poisons Europe

Who should pay for the corona crisis in the EU?

Philipp Heimberger discusses the possibility of a European recovery fund, funded by a common debt instrument.

On the Macro Musings podcast, Ashoka Mody says1 countries like Italy need fiscal transfers from other member states.

But fiscal burden sharing is a toxic idea, as Dutch finance minister Wopke Hoekstra demonstrated.

What’s the real problem?

Italy is 135% of GDP. Spain and France are 100% of GDP, so three of the big Eurozone countries are not going to be able to do fiscal stimulus of 5, 7, 10% of GDP, which is basically what is going to be needed for this crisis. We’re going to need enormous amount of fiscal stimulus. Maybe Germany will do that. In the US, with this two trillion, they’re already at about 9% of GDP, and I expect that it will go up even more, for a number of reasons, but Italy cannot do anything close to that, or Spain cannot do anything close to that.

Ashoka Mody

Clearly, the problem is not the level of debt. The U.S. has a higher debt to GDP ratio than France and Spain.

The problem is the refusal of the ECB to close the sovereign spreads. As I write this, the German 10 year bond yield is -0.461. The Italian 10 year bond yield is 2.182.

How do we get out of this mess?

Every country should do whatever it takes to save its economy. Bail out businesses, pay unemployment benefits.

The expenditures can be funded by bonds. The ECB should keep the spreads low. That means buying whatever it takes.

Secondly, the ECB is once again neglecting its primary objective. Oil prices and unemployment point to low nominal aggregate demand. Without income support to households, it’s unclear how the ECB can achieve its inflation target.

So the ECB needs to do helicopter money drops, as suggested by Eric Lonergan, Frances Coppola, Positive Money Europe, and me.

But what does the ECB do? The Governing Council has never even discussed helicopter money, let alone planned to implement it!

This is not just incompetence, this is financial terrorism.

Frankfurt delenda est.

Pent up demand after corona lockdown will be very limited

Will consumer spending exceed its pre-corona level to make up for the lockdown? I doubt it.

Lockdowns force households to save. However, consumers won’t be able to spend money at crowded spaces1 as easily as they did before the virus.

Furthermore, a lot of consumption is lost forever and cannot be replaced. Just think about things like haircuts, restaurant visits, massages, and housecleaning.

I still think a swoosh-shaped recovery is possible2. Yet I don’t expect the economy will bounce back above its pre-corona level thanks to pent up demand.


Where are the acronyms of the corona crisis?

During the Global Financial Crisis, we learned about CDO, CDS, Fannie Mae, Freddie Mac, MBS, NINJA

Today? Nothing.

Why? Because the crisis didn’t originate in the financial system, but in the sudden shutdown of whole industries.

If you like acronyms to describe what’s going on, I want to coin NICO: no income, cash out.

Comments on ‘Macroeconomic implications of Covid-19: can negative supply shocks cause demand shortages?’

This paper by Guerrieri, Lorenzoni, Straub and Werning (GLSW) looks at the macroeconomic effects of Covid-19.

The authors argue that

  • the economic shocks associated to Covid-191 can cause a fall in aggregate demand that exceeds the original shock
  • fiscal stimulus is less effective than usual because some sectors are shut down
  • monetary policy can prevent firm exits and is more effective
  • the best policy is to close contact-intensive sectors and to provide insurance payments to affected workers

My summary of the GLSW model (their paper is 37 pages long, so obviously I’m oversimplifying and probably missing important things!):

Continue reading “Comments on ‘Macroeconomic implications of Covid-19: can negative supply shocks cause demand shortages?’”


De federale en de Vlaamse regering hebben de acute fase van de economische coronacrisis goed aangepakt. Getroffen gezinnen en ondernemingen kunnen hun rekeningen blijven betalen dankzij een reeks maatregelen1.

Voor bedrijven waarvan de omzet langere tijd laag zal blijven2, lopen de kosten echter op. Zonder steun zullen ook veel gezonde bedrijven overkop gaan.

Mijn plan hieronder gaat uit van de volgende principes

  • Het coronavirus is een geval van overmacht waarbij staatssteun gerechtvaardigd is
  • Ondernemen houdt risico’s in, de overheid kan niet alle verliezen compenseren
  • De steun moet gaan naar rendabele bedrijven, niet naar ‘zombiebedrijven’
  • De steun moet gaan naar wie eerlijk belastingen betaalt
  • Het systeem moet snel, eenvoudig en fraudebestendig zijn
  • Arbeidstekorten moeten vermeden worden

Het plan

Continue reading “Coronaplan”

Wie gaat de coronacrisis betalen?


Het begrotingstekort zal spectaculair stijgen door de coronacrisis. De overheid krijgt immers minder BTW, sociale zekerheidsbijdragen en bedrijfsvoorheffing binnen. Tegelijk geeft ze meer uit in de vorm van werkloosheidsuitkeringen en steun aan bedrijven.

Maar van waar moet het geld dan komen om dat allemaal te betalen? Hogere belastingen?

Nee. De overheid leent het tekort op de obligatiemarkten. Door de tijdelijke hulp kunnen de gezinnen en de bedrijven deze crisis met zo min mogelijk schade overleven. Op die manier zal de economie zich snel herstellen.

Een hogere staatsschuld is in deze tijden dus een vorm van goed bestuur!

Update 23/05/2020: Morgan Housel beschrijft in Who pays for this? hoe Amerika de staatsschuld aanpakte na de Tweede Wereldoorlog.

Kort samengevat: de oorlogsschuld werd nooit afgebouwd. Sterker nog, de V.S. boekten bijna ieder jaar nieuwe begrotingstekorten. Maar de economie groeide sneller dan de staatsschuld, waardoor de schuldgraad kromp.